Federal Reserve officials voted 5-0 this week to downsize the Fed's emergency lending powers, in order to prevent the central bank from bailing out failing companies. This power was last exercised during the 2008 financial crisis. The Fed governors agreed that only broad lending program designed to revive frozen markets will be permitted. This ruling is a beneficial move for financial companies in good financial health and will hopefully be the first of many more steps the Fed will take to keep American taxpayers off the hook for bailing out financial institutions.
The 2010 law enacted by Congress overhauling financial regulation required the Fed to impose the restraints. Lawmakers of both parties had objected to the Fed's emergency aid to several big Wall Street banks and insurance giant American International Group. "Emergency lending is a critical tool that can be used in times of crisis to help mitigate extraordinary pressures in financial markets that would otherwise have severe adverse consequences for households, businesses and the U.S. economy," Fed Chair Janet Yellen said before the vote.